What The Merge Means for Proof of Work Miners
Ethereum (ETH) is not the only network to change this week. After all, rival Proof-of-Work (PoW) networks are also being disrupted by The Merge.
The upgrade dispenses with Ethereum network PoW miners in favor of Proof-of-Stake (PoS) validators, shifting around $5 billion in mining hardware. As a result, some miners have banded together and pledged to “fork” Ethereum. Their idea is to maintain the chain using the PoW consensus under the ETHW code.
The ETHW project reportedly has the support of several major Chinese mining companies. Furthermore, it is being supported by some major centralized exchanges. Poloniex and Gate.io, for example, have already announced that they will list the token after the fork. Meanwhile, Binance and BitMEX already host futures markets for the coin.
But critics argue that ETHW is doomed from the start, and many miners have already chosen to support Ethereum Classic. According to Messari, the Ethereum Classic hash rate has increased by 250% in the last six weeks, reaching historic levels above 72 terahashes per second (TH/s).
ETC hash rate. Source: 2Miners
So, do the Proof of Work diehards pose a threat to Ethereum post-The Merge? Current wisdom says no.
In a recent appearance on The Defiant Podcast, Justin Drake, a researcher at the Ethereum Foundation, said that an outcome where both sides of the Ethereum fork survive is “no longer really viable in our day” due to the network effects of DeFi.
“Wrapped assets like USDC, USDT or Wrapped Bitcoin… you need to choose one of the chains,” Drake said. “This choice is a determining function so that one of the sides is preserved and has a [setor] Healthy DeFi, and the other side of the fork basically has a DeFi ecosystem that will completely collapse…” Drake said.
Marc Zeller, head of developer relations at Aave, tweeted:
“You can’t have a fiat currency-backed stablecoin doubling the supply overnight and keeping the value of $1.”
According to Zeller, stablecoins on the PoW network will be worth $0 when the network launches, causing multi-billion dollar holes for network deployments of major DeFi protocols such as Aave, MakerDAO, and Uniswap.
“Default is a certainty… DeFi PoW is dead on arrival,” said Marc Zeller.
Launch ETH PoW
On September 13, ETHW announced your launch plan via Twitter. They stated that their mainnet would launch 24 hours after The Merge and that they would announce the exact time an hour before. But ETHW has been “blasted” by critics who say the project is poorly organized and poorly thought out.
Igor Artamonov, former developer of Ethereum Classic, tweeted that the project failed to attract respected developers. Furthermore, he stated that the organization does not have a GitHub account and that the names of its code maintainers are unknown.
“They had a lot of time to prepare a Block Explorer, a Wallet and a public RPC. This has to exist in the first few hours,” he said. “I think they’re going to release something, but they don’t know how to execute it properly. It may work for a short time. But unless someone more professional joins in, it will collapse soon.”
“I think the ETH PoW will be a huge failure if they manage to split the network in the first place,” Bob Summerwill, executive director of ETCCooperative, an organization that provides grants to support the Ethereum Classic ecosystem, told The Defiant.
“The ETH PoW team looks amateurish,” Kieran Warwick, co-founder of web3 game Illuvium, told The Defiant. “They failed to prepare the network launch in time for The Merge. There may be issues with chainId risk users; they had a unique chance and lost the momentum for a good launch.”
Miners’ last stop
However, Mark Monfort of the web3 venture studio NotCentralised told The Defiant that “miners are not going to go down without a fight. So to assume this will be a clean break is a bit naive.”
“They’re stuck with sunk costs and given a low probability of success, it’s logical to see why they would fight to stay alive,” Monfort said. But he admitted that the lack of support for ETHW from DeFi protocols and stablecoin issuers “doesn’t look good for ETH PoW.”
However, Ethereum Classic will not be able to face all orphaned Ethereum miners alone.
Summerwill anticipates that an initial flood of hash power could wipe out Ethereum Classic’s mining rewards in the short term.
“Obviously, there are not enough emissions for 15 times as many miners to show up without a big rise in the price of ETC,” he said. “But it’s clear to me that ETC will be the only big viable place for the hash rate mass to end up. Other ecosystems are very small.”
Dcct, an Ethereum Classic miner, agrees:
“ETC will be flooded with hash rate and profitability will drop,” write on the project’s Discord channel. “Only miners with very cheap electricity will remain in the short term. There aren’t many coins these ethash ASICs can mine.”
PoW coin rally
Even so, the price of Ethereum Classic has surged 170% since mid-July, with traders betting the network will accumulate significant security guarantees and network effects from former Ethereum miners.
Several smaller projects are also rallying in the run-up to The Merge as traders speculate on which networks will benefit from Ethereum’s displaced miners, with the PoW Ravencoin and Flux networks posting impressive gains in recent weeks.
Ravencoin’s price has gained 125% since the beginning of September, while the network’s hash rate has nearly tripled over the same period to 7.56 TH/s. Both the hash rate and price of Flux have increased by almost 200% since the beginning of July.
Daniel Keller, co-founder and chief strategy officer at Zelcore Technologies, the team behind Flux, told The Defiant that the project is already feeling the effects of orphaned Ethereum miners.
“The Ethereum Merge is a unique event. So we are preparing for the potential influx of new miners,” he said. “Flux has already started to see an increase in hash rate migration.”
Warning: The text presented in this column does not necessarily reflect the opinion of CriptoFácil.